State reduces payments to cities

CITY HALL — The economic downturn continues to hurt businesses in Santa Monica where city officials are expecting to see less money come in from the state this month because of declining sales tax revenues.

The California State Board of Equalization, which collects $53 billion annually in taxes and fees to support state and local government services, recently sent letters to 337 finance directors notifying that there will be a reduction in the local monthly allocation for August because of an unprecedented drop in taxable sales this year.

For City Hall, that means a payment of about $1.67 million, which reflects a decline of about $209,183.

There are 768 cities that receive the monthly allocation which is based on a formula that includes historical allocation, growth factor adjustments to the base, transfer and audits, and cash receipts. The state receives returns from most retailers on a quarterly basis but pays local governments an advance monthly to keep the money flowing, adjusting it after the reports are completed, Anita Gore, the board spokeswoman said.

“We have been anticipating a 14.4 percent decrease so everybody knew that sales would be down in the economic downturn and the result in taxes would be reduced that go to local (governments) but the downturn has been greater than anticipated,” Gore said.

The reductions this month affected those jurisdictions whose decline in revenues were greater than 21.4 percent. About 15 other municipalities received letters stating that they would not receive any August advance.

“Because there is estimating that goes into these and it’s not precise until we get all the information in and all the returns are scrubbed to make sure nobody made an error in reporting, which takes several months, those localities that took an even greater hit … are the ones whose allocation we reduced this time,” Gore said.

While city officials didn’t anticipate the letter, they don’t believe that the reduction will have a significant impact and will use reserves to fill any gaps.

“It’s not something that the city wanted to see happen but it’s not something that is going to cause any immediate need to make any changes,” David Carr, the principal investment analyst said.

City officials have however been expecting to see some decline in sales tax revenues, budgeting for a 9 percent reduction next year.

The nearby communities of Beverly Hills and Malibu also saw their allocations go down by $173,185 and $16,576, respectively. The county took a $365,843 hit.

The board previously sent similar letters to 460 finance directors in May. City Hall saw its monthly allocation reduced by more than $380,000 that month.

Carr said the state isn’t taking money away from cities but is rather reducing its estimate of what the actual receipts from the quarter will be.

“The city will still receive what it should have received,” Carr said. “The economy is worse in not recovering as fast as had been anticipated.”